Singapore inflation still stubbornly high

The 3.6% drop is "nothing to shout about".

According to DBS, both inflation and industrial production figures for Dec12 due this week will disappoint. Firstly, CPI inflation this Wednesday is expected to inch higher again. The headline number is expected to rise to 3.9% YoY in the month, after a shortlived easing to 3.6% in November.

Here's more from DBS:

In fact, that previous drop is largely arithmetic and nothing to shout about. The point is, domestic inflationary pressure is still exceptionally high. Even the recent drop to 3.6% is twice as high as the 30 years historical average of 1.8%.

And for December’s reading, high COE premiums and rentals, along with rising labour cost will remain the key drivers. Overall, full year inflation for 2012 is expected to come nicely in line with our forecast of 4.5%.

For 2013, inflation will run sideway, hovering around the 4% mark throughout the year. Those factors that have been keeping inflation at such higher than normal level, will continue to fuel the pressure.

Meanwhile, industrial production index for Dec12 will decide whether the economy has dipped into a technical recession in 4Q12, after the contraction in the third quarter. Our sense is that the headline number will disappoint given the lacklustre export performance for the month.

A decline of 4.1% YoY has been penciled into our forecast, which is essentially weaker than the implied -2.3% from the recent advance GDP estimates. That said, this weaker than expected production output will not be enough to drag the economy into the red.

The economy will still avert a technical recession for the second time in a roll.